My Investments

Cryptocurrency Fraught with Risks, Challenges

Cryptocurrency (digital “money” like Bitcoin, Ethereum and Ripple) has been getting a lot of attention.

Online ads for cryptocurrency abound, touting ways to “get rich quick” with this medium of exchange. At the same time, Google and Facebook are banning cryptocurrency ads because the products are “unregulated or speculative” and they’re often associated with “deceptive promotional practices,” news reports say.

It can be a confusing concept that even professionals struggle to fully understand.

Basically, cryptocurrency is digital money used to transact commerce without intermediate processing or accounting via a bank or credit card company – instead processing through a series of computers networked via “blockchain” technology to independently verify the transaction and record the resulting balances.

In addition to the cumbersome length of verification (7 to 10 minutes), a huge challenge of cryptocurrency is that the various currencies are not the same as dollars. (And there are well over 1,000 digital asset and payment systems.) In my view, values of cryptocurrency are hugely inflated – but who can say what the value even is?

While blockchain may be the “next big thing” for financial companies, the greatest risk of cryptocurrency to the markets is how many people are wrapped up in the price appreciation of these cryptocurrencies as “investments.” There is actually nothing investment-related about them – no earnings, no balance sheet, no underlying asset, no stability or consistency. In the end, my concern is that cryptocurrencies could fall in value. That would wipe out a lot of confidence and dreams which would (wrongly) be associated with our true investment markets.

Here’s a real irony: the Washington Post ran an advertisement for a huge conference all about cryptocurrency. Mind you, you couldn’t pay for the conference registration … or your hotel … or your meals in cryptocurrency. You had to pay in dollars, as usual.

Greg Sweeney joined Bell in 1992 and has over 30 years of experience. He studied business/finance at the University of North Dakota. He specializes in investment management, portfolio construction and economics.